BackThursday May 13, 4:02 pm Eastern Time Company Press Release
Guitar Center Inc. to Merge with Musician's Friend Inc. in Transaction Valued at $50 Million
Creates Largest Multi-Channel Musical Instrument Retailer in the World
AGOURA HILLS, Calif.--(BUSINESS WIRE)--May 13, 1999-- Guitar Center Inc. (NASDAQ/NMS: GTRC - news) Thursday announced that it has signed a definitive agreement to merge with Musician's Friend Inc. in a stock-for-stock transaction.
The transaction combines the largest retailer of musical instruments in the world (Guitar Center) with the leading mail order catalogue and e-commerce retailer (www.musiciansfriend.com) of musical instruments (Musician's Friend). The new company will be the largest multi-channel retailer of musical instruments in the world with 61 retail stores, a combined mailing list of four million customers and supported by two distribution/fulfillment centers.
The combined company will be called Guitar Center Inc. and will continue to be headquartered in Agoura Hills, Calif. The majority of the Musician's Friend retail stores will be converted into the Guitar Center format while the mail order and Internet business will continue to operate under the Musician's Friend banner and will be headquartered in Medford, Ore.
Guitar Center will issue approximately two million new shares to Musician's Friend shareholders and will assume approximately $17 million in debt for a total transaction value of approximately $50 million, based on Guitar Center's closing stock price of $16.50 per share on May 10, 1999. The transaction will be accounted for as a pooling of interests.
Larry Thomas, Chairman, CEO and President of Guitar Center, will become Chairman and Co-CEO. Marty Albertson, Executive Vice President and Chief Operating Officer of Guitar Center, will become President and Co-CEO of the combined company and will oversee all retail store operations. Robert Eastman, Chairman and CEO of Musician's Friend, will remain as CEO of the mail order and Internet business and will report to Mr. Thomas. Mr. Eastman will join Guitar Center's Board of Directors.
Larry Thomas stated, ``This merger is significant for several reasons. First, this accomplishes our stated business objective of attaining a leadership position in the catalogue and e-commerce business. Second, we feel that musical instruments will be a successful category over the Internet and Musician's Friend's direct marketing expertise will be complimentary to our merchandising. Third, growth in Guitar Center's e-commerce site (www.guitarcenter.com) will be vastly accelerated due to the use of Musician's Friend's fulfillment center. Fourth, of the nine current Musician's Friend retail outlets, two are small stores in secondary markets, providing us with the opportunity to study and refine a small-store format which will be strategically important to us in the future. Finally, the merger enhances our management team by adding a number of highly seasoned executives with experience in mail order and distribution infrastructure, e-commerce and retailing.''
``Being part of a larger organization should help us to grow and strengthen our position in the marketplace,'' said Robert Eastman, Chairman and CEO of Musician's Friend. ``The decision to merge with Guitar Center was an easy one. I believe that as a part of a larger publicly traded entity, we will have the resources needed to better service our customers and meet our growth objectives. This transaction will allow us to take advantage of economies of scale which will allow us to better serve our customer base.''
The transaction is presently expected to be dilutive to earnings per share in 1999 after completion of the transaction, non-dilutive in 2000 and significantly accretive in 2001. The companies expect to achieve synergies in many areas including leveraging each other's customer base and cost savings resulting from the combination. The company will record a one-time charge to reflect costs associated with the merger in the quarter in which the transaction is closed.
The merger is subject to customary closing conditions including, among other things, regulatory clearances. The merger is expected to be completed prior to the end of the second quarter.
Musician's Friend, with 1998 annual revenue of $97.0 million is the largest mail order catalogue and e-commerce retailer of musical instruments in the country and also has nine retail stores. Founded in 1980 and based in Medford, Ore., Musician's Friend has distribution centers in Medford, Ore., and Knoxville, Tenn. and a state of the art call center in Salt Lake City, Utah. The retail stores are located in Medford and Eugene, Ore.; Tukwila and Kirkland, Wash.; Las Vegas, Nev.; Salt Lake City, Utah; New Orleans, La.; Knoxville, Tenn.; and Denver, Colo.
Guitar Center is the nation's leading retailer of guitars, amplifiers, percussion instruments, keyboards and pro audio and recording equipment. The Company presently operates 52 stores in 26 major markets.
This press release contains certain forward-looking statements relating to the expected financial consequences and dilution of the acquisition and the trends in Company sales growth. Statements are based largely on the Company's current expectations and are necessarily subject to associated business risks related to, among other things, the integration of the two businesses, management of the combined entity and other matters, some of which are outside of the Company's control. Sales trends are affected by many factors including, among others, general economic conditions and the effectiveness of the Company's promotion and merchandising strategies. In light of these risks, there can be no assurance that the forward-looking statements contained in this press release will in fact be realized. For a further discussion of risks associated with the Company's business, please see the discussion under the caption ``Risks Related to the Business'' in the Company's Annual Report on Form 10-K for the year ended December 31, 1998 filed with the Securities and Exchange Commission.
Contact: Guitar Center Inc., Agoura Hills, Bruce Ross, Chief Financial Officer, 818/735-8800